Municipal Bond News 4/13/26

Why It Might Be Time To Buy Municipal Bonds…Volatile Bellwether Yields…Should Investors ‘Buy-The-Dip’…New Muni Bonds… Rate Policy Expectations…Big Apple Budget Plan Draws Flak…Muni Supply Forecast Cut…Lawmakers Debate Gasoline Tax…Federal Budget Proposed…

Why It Might Be Time To Buy Municipal Bonds…“Municipal bonds were crushed in March, enough so that they may now offer a buying opportunity for investors looking for a place to ride out the current market turbulence,” Barron’s wrote last week, adding, “For longer-term buy-and-hold investors, munis’ bad month means buying opportunities may be around the corner, especially as investors seek high-quality, U.S.-focused assets during a time of broad geopolitical uncertainty.” Muni yields are an especially attractive buy-and-hold investment for investors in the highest tax brackets. An expert quoted in Barron’s highlighted, “Levels are exceptionally attractive for investors to begin wading back in.”

Volatile Bellwether Yields…Muni bond yields slid 9 basis points, marking the largest yield drop in a year. De-escalation of the U.S.-Iran conflict with temporary ceasefire and the resumption of mediation led to a bond rally, causing Treasuries yields to drop. This yield drop is similar to yield movements in April 2025, when tariffs on China were paused. Current top-rated muni bond index yields are still 25 basis points higher than March’s yield levels. However, yields edged higher over the weekend, after U.S.-Iran talks ended without a peace agreement, introducing uncertainty.

Should Investors ‘Buy-The-Dip’…Geopolitical tensions increased over the weekend. A Barclays strategist noted, “With rate volatility likely to persist and a challenging technical backdrop through at least May, we think the current environment presents an attractive window to add exposure on market dips ahead of what should be a more supportive backdrop as Middle East tensions eventually ease and summer reinvestment bolsters demand.” Bond markets are keenly tuned into developments in the Middle East.

New Muni Bonds…Vanderbilt Medical Center in Nashville, TN led last week’s primary market, offering $1.1 billion new muni bonds rated S&P/Fitch ‘A’ at a top yield of 4.46% for 20 years. Los Angeles Metro sold $900 billion high grade transit bonds secured by sales tax. Additionally, Mayo Clinic in Rochester, New York also issued high grade 20-year bonds at a top yield of 4.05%.

Rate Policy Expectations…Bond markets are bracing for the next rate cut to be in 2027 and assign about one-in-four odds of at least one quarter-point rate cut due to the fragile state of the U.S.-Iran conflict. Earlier this year, investors expected at least two rate cuts in 2026. Consumer sentiment has slumped since the war began, amid fears that high prices could dampen economic growth. In March, core consumer prices, which exclude gas prices, grew lower than expected. However, although March overall inflation rose to the highest in two years, an about turn from five-year low inflation in February.

Big Apple Budget Plan Draws Flak…In the wake of lower credit outlooks by ratings agencies, New York city officials have become critical of the Mayor’s $127 billion spending plan for Fiscal 2027. New York City Comptroller Mark Levine has voiced concerns on Mayor’s plan to draw down $980 million of city reserves to close a $5.4 billion budget gap. Instead, the Comptroller advocates for more spending restraints. Additionally, New York City Council Speaker outlined an alternate budget that revises revenues and cost estimates, recommending $2 billion of savings to avoid tax hikes on the wealthiest New Yorkers.

Muni Supply Forecast Cut…The largest underwriter for state and local governments, Bank of America, has cut its forecast for 2026 muni bond issuance. A spike in bond yields is weighing on refinancing activity and could depress 2026 bond volume. JP Morgan also believes that geopolitical concerns could put downward pressure on new bond issuance, although it has not revised its ‘forecast given the inherently unknowable nature of both the duration and resolution of the ongoing conflict.’

Lawmakers Debate Gasoline Tax…Higher gas prices are prompting lawmakers to seek a temporary suspension of the 18.4 cent federal gasoline tax. Georgia has become the first U.S. state to suspend its state gasoline tax, while Governor DeSantis rejected calls to do the same in Florida. There is limited political momentum for suspending the gas tax, as this could mean either delaying transportation projects or tapping reserves. Higher oil prices can roil the budgets of most U.S. states, but the nine oil-producing U.S. states could see a revenue windfall.

Federal Budget Proposed…Airports, transportation and energy providers are poised to gain from the Fiscal 2027 federal budget, while fewer federal funds are slated for public transit, healthcare and affordable housing sectors. Additionally, disaster recovery spending through FEMA is sought to be curtailed. The White House federal budget plan for Fiscal 2027, released last week, cuts non-defense spending by 10%. The proposed federal spending plan will be negotiated in Congress. Overall, these ongoing federal funding cuts are likely to lead to increased borrowing by state and local governments.

Compare 30-Year taxable U.S. Treasury yield 4.94% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.34%; “AA” 4.50%; “A” 4.72%. For investors in the 35% tax bracket, a 4.44% tax-exempt yield is equivalent to a 6.68% taxable yield. Top-rated long-term tax-free bonds yield 88% of comparable taxable U.S. Treasuries.